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Pick n Pay Charts Recovery Path with Strategic Plan and Recapitalization | Rateweb
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Pick n Pay Charts Recovery Path with Strategic Plan and Recapitalization

Pick n Pay Stores Limited has released its financial and strategic update for the 52 weeks ending February 25, 2024 (FY24). This comprehensive report details the company’s performance, challenges, and future plans. As a major player in South Africa’s retail sector, these insights provide valuable information for investors and stakeholders.

Sales Performance Overview

Group Sales Growth

Pick n Pay reported a total sales increase of 5.4% for FY24. Like-for-like sales growth stood at 2.9%. This performance reflects the company’s resilience amid challenging economic conditions.

Sales Performance by Region

Region47 weeks ended Jan 21, 202452 weeks ended Feb 25, 2024
South Africa5.2%5.2%
Rest of Africa10.3%10.1%
Total Group5.3%5.4%

South Africa Performance

In South Africa, Pick n Pay’s overall sales increased by 5.2%, with like-for-like sales at 2.6%. However, the performance varied significantly between the different segments.

Pick n Pay vs. Boxer

  • Pick n Pay Supermarkets: Sales declined by 0.2% (+0.2% like-for-like).
  • Boxer: Demonstrated strong growth with a 17.5% increase (8.1% like-for-like).

Rest of Africa

The Rest of Africa segment saw a 10.1% sales growth. On a constant currency basis, the growth was 12.5%.

Segment Performance Highlights

  • Pick n Pay Clothing: Recorded a sales growth of 17.0% (7.7% like-for-like).
  • Pick n Pay Online: Achieved a significant 74.4% sales growth. This growth was driven by improvements in the Group’s online platform and its partnership with Mr D.

Financial Challenges and Asset Impairments

Impact of Asset Impairments

Pick n Pay’s FY24 earnings were significantly impacted by a R2.8 billion non-cash asset impairment. This impairment covered both right-of-use and physical store assets.

Details of Impairments

  • Loss-Making Stores: R1.8 billion impairment for selected loss-making company-owned Pick n Pay stores. These stores will be closed or converted to Pick n Pay franchises or Boxer stores.
  • Underperforming Stores: R1.0 billion impairment for underperforming stores that will remain open. These stores are expected to improve their performance over time.

Earnings Outlook

Earnings Projections

Pick n Pay expects to report a loss at the earnings and headline earnings levels for FY24. The projected earnings per share (EPS) and headline earnings per share (HEPS) are significantly negative compared to FY23.

Expected Earnings Range

Metric52 weeks to Feb 25, 2024 (expected range)52 weeks to Feb 26, 2023 (reported)
EPS-686.01 to -637.33243.37
Diluted EPS-684.23 to -635.73242.54
HEPS-228.99 to -177.14259.25
Diluted HEPS-228.38 to -176.70258.36
Comparable HEPS-281.13 to -228.31264.12
Diluted Comparable HEPS-280.39 to -227.75263.21

Strategic Initiatives

Strategic Initiatives

Recapitalization Plan

To address its financial challenges, Pick n Pay has approved a two-step recapitalization plan. This plan is designed to strengthen the company’s financial position and ensure long-term sustainability.

Rights Offer

The first step involves a proposed renounceable rights offer to existing shareholders to raise up to R4.0 billion. This is expected to take place in mid-2024. The funds raised will be used to reduce the company’s debt burden and improve liquidity.

Boxer IPO

The second step is a proposed initial public offering (IPO) of the Boxer business on the Johannesburg Stock Exchange. This IPO is planned for the end of 2024 and aims to unlock shareholder value by highlighting Boxer’s strong performance and growth potential.

Debt Restructuring

Pick n Pay has concluded a debt restructuring agreement with its lenders, securing liquidity and funding until September 2025. The rights offer and IPO proceeds will be used to repay all group debt, except for working capital facilities that lenders may provide beyond the IPO.

Operational Challenges

Cost Pressures

Pick n Pay has faced significant cost pressures over the period. Internal selling price inflation averaged 7.3%, peaking at 8.3% in the first half of the year before dropping to 6.4% in the second half. This inflationary pressure has squeezed margins and increased operating expenses.

Increased Operating Costs

  • Supply Chain Costs: R116 million in duplication costs during the Longmeadow/Eastport handover.
  • Employee Restructuring: R307 million in restructuring costs.
  • Trade Receivables Provisioning: An additional R400 million, reflecting the difficult trading environment, including a R200 million provision increase in Botswana.
  • Debt Servicing Costs: Incremental net debt service costs of R467 million due to increased gearing and higher interest rates.
  • Diesel Costs: Total diesel costs of R698 million for running generators, compared to R652 million in FY23.

Strategic Plan and Future Outlook

CEO’s Strategic Plan

Group CEO Sean Summers has introduced a new strategic plan focused on revitalizing the Pick n Pay Supermarkets business. The plan aims to improve execution and operational efficiency, thereby enhancing profitability.

Strengthening High-Growth Segments

The strategic plan also emphasizes reinforcing the high-growth Boxer, Pick n Pay Clothing, and Online businesses. By leveraging the strengths of these segments, Pick n Pay aims to drive overall group growth and profitability.

Debt Reduction and Cost Management

A key aspect of the strategic plan is the significant reduction in debt post-recapitalization. This will lower interest charges and improve the company’s financial health. Effective cost management and operational efficiencies are expected to contribute to improved financial performance over the next two years.

Segmental Profit Disclosure

To provide greater transparency, Pick n Pay will introduce segmental profit disclosure for Pick n Pay and Boxer in the FY24 results announcement. This will highlight the strong performance of the Boxer division and provide a clearer picture of each segment’s contribution to overall profitability.

Conclusion

Pick n Pay’s FY24 results reflect the challenges faced by the retail sector in South Africa. Despite a modest increase in group sales, significant asset impairments and rising costs have led to anticipated losses. The company’s comprehensive recapitalization plan and strategic focus on improving supermarket performance and leveraging high-growth segments like Boxer and Online businesses are critical steps towards financial recovery. With a clear roadmap and committed leadership, Pick n Pay is poised to navigate through its current challenges and emerge stronger, delivering value to its shareholders and stakeholders.